CAMARILLO, Calif. -- Between March 24 and April 7, crude-oil prices gained the equivalent of 10 cents per gallon (CPG). And it was no accident that the U.S. average retail price of regular-grade gasoline did as well. The new average pump price is $2.4327, up 9.64 cents over the past two weeks, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations.
Crude oil, again gasoline's boss, was reflected penny for penny in the pump-price hike. Although not always so close, long-term, gasoline prices do follow crude as crude is the biggest piece of the gasoline-price pie. Oil prices responded to the U.S. strike on a Syrian airbase and other factors. Even if oil does not retreat quickly from here, gasoline prices aren't likely to drop because their own upward price pressures are mounting.
Pump-price pressures include the strong seasonal demand builds; measly retail gasoline margin in sore need of recovery; the shift to costlier, lower-Reid-vapor-pressure (RVP) product occurring around the country; and the recently increased cost of Renewable Identification Numbers (RIN) for compliance with the federal ethanol sales mandate.
Right now, retail margin alone is enough to hike the pump price, or make an oil-price slip invisible at the pump; it was a measly 12.64 CPG on regular grade on April 7. Retail margin has been squeezed most of the time for half a year. Year to date, it is 3.5 cents poorer than it was during calendar 2016, and 3.7 cents poorer than it was in 2015.
While U.S. refiners were able between March 24 to April 7 to pass crude-oil price hikes and rising gasoline production costs into wholesale gasoline prices, plus improve their gasoline margin slightly, retailers on average got hit with another loss. In fact, their gasoline margin shrank by 2.5 cents in those two weeks. In the past month, retailers have lost 3.6 cents in margin.
When the various combined pressures on pump prices push gasoline prices higher, to casual observers some of the hikes may seem out of proportion with seasonal demand increases, higher costs of lower-RVP product coming to markets, and even moves in the crude-oil market—if retail margin recovery is as strong as it logically should be.
Camarillo, Calif.-based Lundberg Survey Inc. is an independent market-research company specializing in the U.S. petroleum market and related industries.
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